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Exam 1: An Introduction to Tax

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Question 71

Multiple Choice

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Leonardo, who is married but files separately, earns $72,000 of taxable income. He also has $20,000 in city of Tulsa bonds. His wife, Theresa, earns $55,000 of taxable income. If Leonardo and his wife file married filing jointly in 2020, what would be their average tax rate?(Use tax rate schedule.) (Round your final answer to two decimal places.)

A) 12.00 percent
B) 22.00 percent
C) 15.37 percent
D) 22.42 percent
E) None of the choices are correct

F) A) and E)
G) D) and E)

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Question 72

Multiple Choice

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Al believes that SUVs have negative social and environmental effects because of their increased carbon monoxide emissions. He proposes eliminating sales taxes on smaller automobiles in favor of higher sales taxes levied on SUVs. Al performs some calculations and comes to the conclusion that based on the current number of SUVs owned in the U.S., exactly the same amount of total sales tax will be collected under his reformed system. Which of the following concepts explains why Al's idea may not work?

A) The ability to pay principle
B) Horizontal equity
C) Substitution effect
D) Vertical equity
E) None of the choices are correct

F) D) and E)
G) A) and B)

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Question 73

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The income and substitution effects are two opposing effects that one could consider in static forecasting.

Manny, a single taxpayer, earns $68,400 per year in taxable income and an additional $12,340 per year in city of Boston bonds. If Manny earns an additional $38,600 in taxable income in 2020, what is his marginal tax rate on this income? (Use tax rate schedule.) (Round your final answer to two decimal places.)

One key characteristic of a tax is that it is a required payment to a governmental agency.

Earmarked taxes are:

Manny, a single taxpayer, earns $65,000 per year in taxable income and an additional $12,000 per year in city of Boston bonds. What is Manny's current marginal tax rate for 2020? (Use tax rate schedule.)

The effective tax rate expresses the taxpayer's total tax as a percentage of the taxpayer's taxable and nontaxable income.

Curtis invests $250,000 in a city of Athens bond that pays 7 percent interest. Alternatively, Curtis could have invested the $250,000 in a bond recently issued by Initech, Incorporated that pays 9percent interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 24 percent. What is Curtis's after-tax rate of return on the city of Athens bond?

Curtis invests $775,000 in a city of Athens bond that pays 9.75 percent interest. Alternatively, Curtis could have invested the $775,000 in a bond recently issued by Initech, Incorporated that pays 12 percent interest with similar risk as the city of Athens bond. Assume that Curtis's marginal tax rate is 24 percent. What is Curtis's after-tax rate of return on the city of Athens bond?

Which of the following is true regarding real property taxes and personal property taxes?

The main difficulty in calculating an income tax is determining the correct amount of the tax base.

Relative to explicit taxes, implicit taxes are much easier to estimate.

To calculate a tax, you need to know: I. the tax base II) the taxing agency III) the tax rate IV) the purpose of the tax